Option Investor
Newsletter

Daily Newsletter, Thursday, 05/04/2000

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The Option Investor Newsletter                   Thursday 5-4-2000
Copyright 2000, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       5-04-2000           High     Low     Volume Advance Decline
DOW    10413.10 -  67.00 10523.10 10407.50   919,329k 1,614  1,278
Nasdaq 3,720.24 +  12.93  3762.47  3679.43 1,287,334k 2,199  1,770
S&P-100  756.81 -   4.37   764.37   754.29    Totals  3,813  3,048
S&P-500 1409.38 -   5.72  1420.99  1404.94            55.6%  44.4%
$RUT     501.91 +   6.35   502.63   495.52
$TRAN   2794.96 -   1.49  2806.93  2784.79
VIX       35.43 +   0.92    36.38    34.17
Put/Call Ratio       .58
******************************************************************

Fed fears raise risk reward ratios to unacceptable levels.

Will he or won't he? Only Greenspan knows for sure and he 
is not talking. Actually he is talking but he is not saying 
anything and that worries investors. The fear of the Fed put
the skids on the Dow again today as financial issues continue
to look for shelter. There is no other news worth repeating.
It is Fed, Fed, Fed interspersed with the love bug virus.
Now if we could only send the Fed the virus....

The Dow actually did not have a bad day. Yes, it finished
down -67 points but after yesterday's whopping loss the
narrow trading range for today was like a breath of fresh
air. 10400 appeared to hold today and could be a staging point
for the next rebound if the non-farm payrolls are benign.
The Nasdaq only posted a +13 point gain but after being down
-192 at the low yesterday we will take anything we can get.
Actually with the bottom at 3600 yesterday and roughly 3700
today we still have a strong series of higher lows building 
upward pressure as more and more long term investors decide
that the worst is over.


 


 

The Love Bug Virus was about the only thing besides the Fed
in the news today. This serious virus has reportedly infected
hundreds of thousands of computers and it goes after the heart
of Windows, the registry. The FBI has already started working
on tracking down the authors of the virus. Some reports have
it starting in the Philippines. The main thing you should learn
from this is NEVER OPEN ANY ATTACHMENT FROM ANYBODY unless you
confirm with them that it is ok. Most of the recent virus
attacks have cloned themselves to your email system and send
emails to your address list without your knowledge. That love
letter you got today was sent from your friends computer but
not by your friend. If you are sending an attached file to
someone it is a good idea to include some text that says,
"Bill, this attachment is okay to open, Fred."  If you send
files repeatedly to others you can setup a code word to tell
them quickly that it is a real file. Something like "Matrix"
in the subject line tells them that the attachment really 
came from you. You can tell how many people thought they
were really in love by the number of virus emails you received
today. The people whose lists I belong to must be very amorous
because I received almost a dozen virus emails. Makes you
wonder since all of the ones I got came from guys and most are
married. Does this prove how gullible males really are?

Enough talk of the Love Bug virus when we have a real interest 
rate virus taking a toll on the markets. You have heard it all
week but the toll on the markets is growing. The Fed dread is
paralyzing investors into non-action. The volume in the market
is drying up as buyers sit on the sidelines and wait. Today's
economic report showed that worker productivity dropped to only
half of the huge gains from last month. With productivity up
only +2.4% the Fed loses one of the reasons to be incremental
in their rate hikes. Productivity had been soaring and the
Fed kept scratching their collective heads because higher wages
was ok with higher productivity. Drop productivity and all of
a sudden higher wages are more critical to the interest rate
decision.

Greenspan is really in a quandary this month. The market is
choosing up sides and even if he wanted to only raise +.25%
the market analysts are forcing his hand. The Fed fund futures,
which have been right 30 of the last 31 times are calling for
a 66% chance of a +.50% hike. Not a sure thing but close. 
Volume on the futures has increased +40% since the ECI last
week as investors hedge their investments against a runaway
Fed. The futures show a 100% chance of a +25% rate hike at
each of the next three meetings and reach the 7% level. If
that is not enough there is also almost a 75% chance according
to the futures that the Fed funds rate will be 7.5% next year.
Yes, 7.5%. Anything in the 7% range is going to put serious
pressure on the stock market. 

So what happened to mister incremental? Greenspan has always
been known as slow and steady. Using his analogy of the US
economy as a super tanker and interest rate hikes as very 
small chances in rudder direction, even the smallest changes
in the rudder will eventually change the course of the tanker
but it could be miles before they are noticed. Interest rate
changes take 6-9 months to be felt in the economy and the
main fear is the last hike. The one that hikes too far and
forces the Fed to react in the opposite direction with cuts.
The Fed does not want to be constantly changing rates. They
would rather just keep the speed constant and not ever be
responsible for a recession. Greenspan spoke today and he
said nothing about rate hikes. OOPS! The Fed always clearly
indicates policy in advance of action. Did his no comment
mean he was still undecided about how big an increase they
might make? Or was his no comment a crafty way to give the
market another Maalox moment as analysts scrambled to read
into his comments something that was not there? Are we 
having fun yet?

This soap opera is getting more complicated with each newscast.
Greenspan cannot simply rely on the self correcting, self
discounting US markets when making this decision. The wild
card this week is the Euro. Yes, the Euro, now trading at
an all time low and dropping daily as the US dollar gets
stronger. Higher interest rates create a stronger US dollar
and that impacts the other world currencies. If the Fed
wanted to raise +.50% to shock the economy they now have
to also worry about the falling Euro. This now adds an
element of global responsibility to the decision as well.

We have had hike after hike over the last few months and
the market just shook it off and continued to roar. Why is
this meeting causing so much concern? The answer is valuations
and inflation. Inflation as reported in the CPI/PPI/ECI etc
is slowly showing undeniable signs of growth. Between now
and the May-16th FOMC meeting there is no lack of economic
reports. The Non-farm payroll report on Friday could be the
spark that starts the bonfire. With new jobs expected to be
over +310,000 analysts worry that the unemployment rate could
drop below the psychologically important 4% level. Hourly
wages could increase by more than .4% and wage growth by
more than 3.9% annually. It is a recipe for inflation disaster. 
Add the PPI report on the 12th and the CPI report on Tuesday
of the Fed meeting and the Fed has every piece of information
they need to make their move. The worry of course is that these
three reports will all line up to confirm the inflation rumor
and cause the Fed to react aggressively for the next several
meetings and that would be a very bad sign. Robert Perry, the
San Francisco Fed President, said today that the Fed needs to
act aggressively, but cautiously. Nothing like talking out
of both sides of your mouth. This type of rhetoric is causing
confusion in the market and when there is confusion money
moves to the sidelines. Higher interest rates impact high PE
stocks and many old time investors point to the S&P-500
with an average PE of 24.7 as historically over valued. The
bulls however point to popular stocks like EBAY with a PE
of 1,369 and claim the S&P is undervalued. It is like the
chocolate or vanilla question. The answer is not material
as long as you are happy with the one you order. This 
market has slowed on the historical impact of interest rates
but in reality I think interest rates are not as applicable 
to Nasdaq stocks as they once were. Barton Biggs of course
reserves the right to be wrong forever on market direction.
The noted bear actually said today that he could see a relief
rally of two to three weeks after the Fed decision but stocks
would come back down. So if he has been wrong for years and
he is calling for a relief rally, does that mean the market
will crash?

Fed worries have put a lid on volume with the NYSE only
trading slightly over 900 mln shares and the Nasdaq only
1.2 bln. Simply a buyers strike of major proportions. The
NYSE advance declines was actually positive as were the 
Nasdaq advances as well. This tells me there are no sellers
either. It looks to me like we could be setting up for a
relief rally. I hate to agree with Barton but there are signs
in the charts. The Nasdaq has four higher lows and held firm
today when it could have easily sold off in fear. I believe
that if the non-farm payrolls comes in at anything less than
complete blowout then the Nasdaq will rebound to the 4000
level again. Hopefully putting in another higher low before
the Fed meeting. We have a week before the PPI and a week
in this market is an eternity. I think the market has already
priced in a +.50% hike and only a +.25% hike will be viewed
almost like an easing. The Fed has not raised more than .25%
in five years and with the Euro lurking in the background
the rate hike is still a toss up in my mind. I am more 
concerned about the weak fund inflows this week than the Fed. 
Of course the weak cash flows could be simply Fed dread at 
The retail level. The VIX is screaming buy at 36 but before 
you dip in to that margin money again remember it was over 40
on the big dip last month and that is the highest it has been
since Oct-1998. 

My parting thought, greed is alive and well. With the market
beaten down so hard over the last month the odds of a strong
rally after the Fed meeting and into the July earnings period 
are very strong. When odds are in favor of a rally aggressive
investors will start moving into position in advance of the
event. This is setting us up for buying on a benign jobs
report and support building next week for a post Fed rally.
Should you buy yet? Let your conscience be your guide. I
am still flat with only one small position. I almost succumbed
to the buying impulse today at the close but decided to be
safe not sorry. I wish the jobs report would come in at 600,000
jobs and give us one more tweezer bottom at the open. Instead
since I am flat we will probably get a less than expected
number and the market will gap open +200 points and never
look back. Murphy is alive and well! I will be target shooting
at the open on any negative news because I believe the downside
is limited. It is my personal opinion but I do vote with my
own money. 


Trade smart and don't buy too soon.

Jim Brown
Editor

Current long positions include: RAMP


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**********
STOCK NEWS
**********

Eastman Chemical To Buy McWorter Technologies
By Matt Paolucci

Eastman Chemical Co. (EMN) will buy specialty resin maker
McWhorter Technologies Inc. (MWT) for about $200 million cash.
Eastman will also assume about $155 million of McWhorter debt.

Under the agreement, a wholly owned subsidiary of Kingsport,
Tenn.-based Eastman will commence a tender offer for all
outstanding common shares of Carpentersville, Ill.-based
McWhorter at $19.70 cash per share.

Allan Rothwell, president of the Chemicals Group at Eastman,
said his firm had identified a number of synergies that "give
us confidence that this acquisition will meet our financial
and business goals." He said current projections and
assumptions show the acquisition will be immediately accretive
to cash flow and should turn accretive to earnings in 2001.

The deal, which will be accounted for as a purchase, is
expected to increase Eastman's presence in the coatings,
adhesives and specialty polymers product lines to
approximately US$1.4 billion in annual revenues.

"This transaction represents another significant step in
Eastman's strategy of pursuing growth opportunities for our
specialty businesses, which offer faster growth and payback on
investments, provide lower cyclicality and capital intensity
and allow us to capitalize on our strengths," said Earnest W.
Deavenport, Jr., chairman and CEO.

The deal, approved by both companies' boards, is expected to
boost Eastman's presence in the coatings, adhesives and
specialty polymers market to about $1.4 billion in annual
revenues.

Eastman, which makes and markets plastics, chemicals and
fibers, had 1999 sales of $4.6 billion.

McWhorter is a leading manufacturer of specialty resins and
colorants used in the production of consumer and industrial
coatings and reinforced fiberglass plastics. Sales for fiscal
1999 were $444 million.

Following completion of the tender offer, Eastman plans to
consummate a cash merger to acquire any shares not previously
tendered. McWhorter has some 10 million shares outstanding.

Allan Rothwell, president of the Chemicals Group at Eastman,
said that he and his team are eager to complete the
transaction and begin integrating the McWhorter and Eastman
businesses. "Our current projections and assumptions show this
acquisition will be accretive on a cash basis immediately and
should turn accretive on an earnings basis during 2001."

He noted that previous transactions, including the acquisition
of Lawter International in June of 1999, enhance the synergies
of the McWhorter acquisition.

Jeff Nodland, McWhorter CEO, also expressed support for the
merger. "McWhorter and Eastman have had a similar focus on
selling products to the coatings industry. We expect that our
customers will benefit from this combination as we enhance the
capabilities of both organizations to develop better products
and services for the industry," he said.



**************
MARKET POSTURE
**************

As of Market Close - Thursday, May 4, 2000

                   Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************

DOW Industrials   11,000  11,400  10,413    BEARISH   4.28
SPX S&P 500        1,500   1,550   1,409    BEARISH   4.14
OEX S&P 100          800     850     757    BEARISH   4.13
RUT Russell 2000     550     600     502    BEARISH   4.14
NDX NASD 100       4,000   4,500   3,571    BEARISH   4.13
MSH High Tech      1,000   1,150     922    BEARISH   4.13

XCI Hardware       1,600   1,700   1,444    BEARISH   4.13
CWX Software       1,500   1,670   1,186    BEARISH   4.04
SOX Semiconductor  1,200   1,300   1,088    BEARISH   4.13
NWX Networking     1,070   1,190   1,011    BEARISH   4.04
INX Internet         800     940     601    BEARISH   4.04

BIX Banking          530     620     528    BEARISH   5.04 *
XBD Brokerage        500     580     455    BEARISH   4.14
IUX Insurance        540     620     583    Neutral   3.16

RLX Retail           900   1,000     859    BEARISH   5.04 *
DRG Drug             355     385     371    Neutral   4.28
HCX Healthcare       710     775     755    Neutral   4.28
XAL Airline          130     155     145    Neutral   3.10
OIX Oil & Gas        265     300     289    Neutral   3.16

Posture Alert
Broad market indices under continued as the DJIA slips under the 
key 10,500 level again.  Today, the Banking and Retail industry 
sectors closes below their 50dma and key benchmark support level. 
We have, therefore, turned Bearish across these sectors.



****************
MARKET SENTIMENT
****************

Thursday, May 4, 2000

Treading Water

Broad markets caught treading water as investors sit on the 
sidelines ahead of tomorrow's key unemployment report.  Before 
we take a look at some of the sentiment related indicators, 
Pinnacle Capital Advisors would like to touch on one subject 
that keeps popping up in the business news media.  Are we in 
a Bear market?  For those who attended the Options Expo in 
Denver at the end of March, we talked about the four key market 
and/or stock stages as outlined below:

Stage 1 - Bottom Consolidation
Stage 2 - Breakout
Stage 3 - Top Consolidation 
Stage 4 - Breakdown

One of the characteristics of a breakdown bear market or Stage 4 
is that the market or industry sector index breaks below its 
DECLINING 200 dma.  

Pop quiz?  Which industry sectors that we cover in our market 
posture section have drifted into the classic breakdown bear 
market phase (Stage 4)?

Most would be surprised to learn that really only one index 
clearly falls into the classic breakdown bear market phase 
(stage 4) - Banking (BIX).  Although two other indices are 
currently trading under its 200dma (Retail and Oil & Gas), their 
respective 200dma are flat rather than declining.  

Although we have experienced some steep declines in the technology 
sector and we may turn bearish over the near term, we remain 
firmly ABOVE the INCLINING 200dma.  This tells Pinnacle that, 
at best, we may be ending the breakout stage (Stage 2) and 
entering into the top consolidation phase (stage 3).  But it's 
too soon to tell yet until we test the prior highs again.  So 
be careful as you listen to CNBC and falsely assume we are 
going to skip the top consolidation phase (Stage 3, and move 
directly to the breakdown phase (Stage 4).  We will be addressing 
this topic more in Sunday's (5/7) newsletter so stay tune.

Now let's turn our attention to market sentiment.  The first 
observation is that the market volatility index (VIX) closed at 
35.20 and appears that wants to spike near its previous high 
and give us another BUY signal perhaps as early as tomorrow 
morning when the key unemployment figures are released. 

However, the other reports we like to look at to confirm an 
intermediate bottom is the QQQ and SPY volume.  For a classic 
bottom, we like to see these instruments show high volume during 
bottom reversals and we have not really seen this yet.

Finally, don't look now, but the 30-year Treasury bond Index has 
moved higher and closed above the key 6% level again.  Higher 
interest rates generally are not good for the equity markets. 


 


 


 


 


BULLISH Signs:

Corporate Earnings:
Major corporate earnings continue to come out strong and ahead of
analyst expectations. General Electric is the latest bellwether
to give positive comments regarding earnings.

Volatility Index (35.43):
The VIX continues to prove that the low 30's are an excellent
buying opportunity, and the low 20's continue to be a great
selling opportunity.

Short Interest (NYSE):
Short interest on the NYSE fell 1.33% to 4,055,931,190 shares on
April 14; however, this is still a high level and from a
contrarian viewpoint, would be considered bullish.


Mixed Signs:



BEARISH Signs:

Interest Rates (6.174):
Don't look now, but the 30-year Treasury bond Index has moved 
higher and closed above the key 6% level again.  Higher interest 
rates generally are not good for the equity markets.

Crunch:
With the fear of inflation, and the most likely scenario of
several more rate hikes, liquidity in the marketplace will become
a more significant issue and put more pressure on equities.

Energy Prices:
With the rapid rise in crude oil, everything from manufacturing
to transportation will be affected by higher costs. These higher
costs will be felt 1-2 quarters out, and could put pressure on
profit margins.

Investor Expectations:
More and more investors are now expecting high double-digit
growth if not triple-digit expansion in their portfolios. This
extreme positive sentiment could help fuel a future sell-off in
technology shares.


*****************************************************************

The Power of Sentiment Analysis

It has often been said that the crowd is right during the
market trends but wrong at both ends.  Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.


Pinnacle Index
*****************************************************************
OEX                              Friday       Tues        Thurs
Benchmark                        (4/28)       (5/2)       (5/4)
*****************************************************************

Overhead Resistance (805-830)     3.03        3.43        3.53
Overhead Resistance (775-800)     1.04        1.05        1.05

OEX Close                       781.42      779.25      757.20

Underlying Support  (745-770)     2.22        2.49        2.56
Underlying Support  (715-740)     8.19        4.95        5.20

What the Pinnacle Index is telling us:
Based on the above statistics, direct overhead and direct
underlying both remain light, indicating we could either way with
relative ease.



Put/Call Ratio
*****************************************************************
                                Friday      Tues       Thurs
Strike/Contracts                (4/28)      (5/2)      (5/4)
*****************************************************************


CBOE Total P/C Ratio             .51        .58         .58
CBOE Equity P/C Ratio            .41        .49         .49
OEX P/C Ratio                   1.29       1.98        1.98


Peak Open Interest (OEX)
*****************************************************************
                     Friday          Tues            Thurs
Strike/Contracts     (4/28)         (5/2)            (5/4)
*****************************************************************

Puts                660 / 5,521   710 / 5,506        700 / 5,711 
Calls               800 / 5,916   800 / 5,440        800 / 7,995
Put/Call Ratio        0.93           1.01            .71



Market Volatility Index (VIX)
*****************************************************************
                    Major
Date                Turning Point       VIX
*****************************************************************
October 97          Bottom              54.60
July 20, 1998       Top                 16.88
October 8, 1998     Bottom              60.63
January 11, 1998    Top                 26.38
March 4, 1999       Bottom              28.15
May 14, 1999        Top                 25.01
July 16, 1999       Top                 18.13
August  5, 1999     Bottom              32.12
October 15, 1999    Bottom              32.06
January 28, 2000    Bottom              29.09
April 14, 2000      Bottom?             39.33

May 2, 2000                             30.86
May 4, 2000                             35.43



************
WOMANS WORLD
************

What Trading Style Will You Use In A Sideways Market?
By Renee White

Did you hear the comments today?  "We could already be in a bear 
market and not even know it."  Is your trading style conducive to 
making money in this environment?  Most are not.  Many of you are 
trying to fight the trend, like the email I received last night 
attached to the end of this article.  Others are sitting out, 
avoiding more mistakes.  Then there are a few, who are lucky 
enough to scalp small consistent profits.  Fewer still, are 
skilled enough to know with confidence, they can profit in this 
environment.  Since I changed my trading style, I find myself in 
the lucky scalping category.  If this stops working, I will move 
to the sidelines and continue to study my books.  

As option traders, we all know that our movements are exponential 
due to the leverage afforded the derivative.  That has made many 
option traders very wealthy, in the era of a strong underlying 
bull market.  Unfortunately, most of these traders are new and 
have no experience trading bear markets where the exponential 
move to the downside, could make many option traders cry.  New 
traders think a bear market lasts a day or two, or a couple of 
weeks.  To some, it is just another dip to be bought perhaps with 
3-6 month options, riding out the storm with the optimism of a 
child before Christmas.  Funny how dreams of great wealth make so 
many blind to objectivity.  Tenured option traders know that they 
must play the market given to them.  Dues are high into this club 
as many are unable to read the necessity to change perspectives 
on the head of a fiber-optic thread.  Many dismiss the warning 
signs.

At this point, there are many who expect our problems (problems 
being an unappreciative market for bull option traders), to be 
over once the May FOMC meeting is over.  Perhaps they are right.  
There are thoughts that a 50 basis point interest rate increase 
could actually cause a relief rally in this ischemic market.  
I'd like to challenge you to consider what might happen to your 
trading account, if we only get that 25 basis point increase 
instead.  I suspect it would cause continued weakness and a bad 
June trading month as we continue low volume waiting on the June 
FOMC meeting.  Of course by then, more economic data will be 
available for fearful scrutiny every week. 

To be a successful option trader, you must learn to read the 
market.  We say all the time, learning the strategy alone is 
not enough.  One must learn when to play which strategy, when 
to let them run and when to take a large loss before it becomes 
the larger one.  I wrote in March about what a bad joke it would 
be if we did not get an April's earning run and the split plays 
didn't work.  Gosh, I wish I had read my own words!  Was that by 
accident?  I don't know.  I just write what comes to mind on the 
day of an article; a free flowing assessment of my thought process 
as it relates to my own trading.  When markets are healthy, it is 
easy to talk about plays.  But a prolonged bear market or worse, 
a prolonged sideways market, is not something most option traders 
have experienced.  All levels of option traders are adjusting 
their trading styles these days. 

The noise on the street is bothering me.  I'm not as confident 
about blowing off bearish comments as I've been in the past.  
That is new for me.  I've learned before; when I lose significant 
money in the markets, my trading improves.  Expensive lessons!  
My mother, a child of the depression, asked me several years ago 
what happens to my trading if the markets go down.  I told her I 
would have to learn to play the downside.  Until this recent 
decline, I never felt comfortable playing down markets because 
it seemed against the overall up-trend.  What scares me now is 
that I am practicing these skills.  I'm not comfortable placing 
bullish option trades 6 months out and frankly, I am not 
comfortable holding much at all overnight.  I'm not even ready 
to buy leaps yet. 

Each of us will need to assess our own risk tolerance and 
determine our own strengths and weaknesses.  Those who sit out 
until they feel a clear market direction may be the wisest and 
wealthiest of all.  A trend-less market (one that is range-bound), 
is the toughest market for 90% of option traders to be successful 
in.  Many try one new unsuccessful strategy after another, trying 
to find the one that works, instead of realizing that what worked 
in the morning, might not work in the afternoon.  A range-bound 
market is much more difficult to trade than either a bull or bear 
market.  Instead, it makes a great time to read, study and pay 
attention to those personal areas of your life that you have 
neglected.  That's hard too, if you are living on the income from
trading.

The reason for this rhetoric is my fear that we could stay range 
bound for many months, if not most of the year.  Sure, the 
economy is good, but the markets have a mind of their own and 
tend to trade ahead of what we see as general consumers.  Each of 
us needs to be challenged to think ahead of the curve and 
determine how this possibility will affect our own trading 
styles.  Will you be one of those who completely ignores the 
signs that the game has changed?  Will you be one of those 
looking back at the end of the year, asking yourself why you did 
what you did?  Do you have a defined strategy to make money that 
is specifically set aside for range-bound market?  Can you act 
fast enough to take advantage of a surging rally that lasted only 
half a day, then grab profits quickly before it sells-off again 
the very next morning?  If you must play, learning new techniques 
that work in this environment, will improve your life-long 
trading skills.  Is it time to learn hedging techniques, calendar 
spreads or more sophisticated strategies?  Or is day-trading more 
comfortable knowing exactly what you gained or lost at the end of 
each day?  Will you still be successful picking the right equity 
to play?  Or is this the time to learn to trade the broader market 
or indexes?  Each of us may be different in our assessments but 
the important thing is to ask yourself if you are playing the 
market that is given.  I am pondering these thoughts myself, 
daily.

Let's all hope I am wrong and the stagnation ends soon.  On the 
brighter side, the first FOMC meeting in which we do not get a 
rate hike will probably make all of us money as the market rallies 
and the shorts are squeezed to cover.  However, would that be 
enough to advance through the typical summer doldrums when volume 
is historically low and markets historically weak?  Gosh, I wish 
I new.  Also, be careful shorting or playing the downside if all 
the generals are sitting at support.  That would be another mean 
trick to be playing the downside successfully, only to be caught 
in a market reversal when everything is sitting at the bottom of 
the trading range. 

This email from yesterday, prompted today's article.

"Dear Renee:
I am one of those NEW OPTION TRADERS you mentioned in your 
article today. I "thought" I picked good option plays and was 
making money (until yesterday) but because the Canadian online 
trading does not allow Stop Loss Orders to preserve profits, it 
all went down the tubes." (a list of their current May options 
was listed for my review) "Is there really hope for a (GE) rally 
for the 3:1 split on Friday with bad news looming on Thursday?   
There's 3 red arrows already!  If the intrinsic value goes to 0 
and there is a lot of time left to the 20th of May, then if the 
option starts rallying again, I would still have a chance to 
recover some monies.  Worst-case scenario would be that it 
expires worthless. Does this mean I do not have to pay broker's 
fee to sell, right?" T
  
Oh Dear T, the glassy-eyed innocence of a new "trader".  I don't 
know where to start.  I think I could write a book in response to 
your email. 

I cannot give you specific investment advice but I will tell you 
that I hold NO May, June or short-term option plays.  Others may 
choose to play May options as it fits with their risk profile, 
but mine is saying stay out.  May options are losing time value 
at a rapid pace right now because we do NOT have plenty of time 
with only 2 weeks left.  The last 30 days is the fastest 
deterioration of time value on your premiums, escalating daily.  
It sounds to me by focusing on option expiration day and splits, 
that you are not looking at the bigger picture.  We have some 
major economic events going on right now, which affect your plays.  
Please explain to yourself, why you would hold an option that 
is losing value, waiting on it to expire worthless and worrying 
about the commission on an option going to 0?  Why not sell it 
before it is worthless and lose a little of your investment, 
instead of all of it?   You are missing a clear understanding 
of some major parts to the game, needed to be successful.  I 
would suggest using this time to read and paper trade.  See if 
you can be successful with that first.  You will be glad you 
did.  Good luck with your continued studies.  R.

Again, This Is Not A Market Beginners Should Be Trying To Learn 
In.  Even a relief rally on Friday will not change that feeling.  
These days, I am spending time re-evaluating my own trading style, 
with little tolerance for anything that goes against me.  I am 
trying my best to look at where the market is right now, not where 
it has been, or where I hope and wish it will go.

Contact Support


*****

Reverse Conversions
By Mary Redmond

Last week I wrote about the conversion ratio and why it is 
significant to option traders.  There is also a reverse
conversion, which is usually used by floor traders to offset
a position.  Part of our job as options traders is to 
understand the reasons options are priced the way they are. 
This can sometimes help to identify mispriced options.

A conversion is important because it helps traders to 
understand the put/call ratio and why options are priced
according to this ratio.  Puts and calls are priced so that
the conversion profit is equal to or less than the rate of
borrowing money for the time period of the option.  If this
were not true, then traders would use conversions all the
time since it is a theoretical risk free profit.

A conversion means buying a stock and a put, and writing a 
call with the same strike price and expiration date.  A
reverse conversion means selling the stock short, selling a
put and buying a call.  For example, when CMGI was 62.5
the June 62.5 call was 7 7/8 to 8 5/8, and the June 65 put
was 7 3/8 to 8.  If you were to buy the put at 8, the market
maker might sell the put to you at 8, short the stock at
62.5 and buy the call at 7 7/8.  His profit in this case
would be 1/8 of a point, since they do not pay transaction
fees.

The market maker is protected from loss in this case because
if the stock goes up he can exersize his call and buy it at
62.5 to cover the short.  If it goes down, the call expires,
and if he is "put," meaning he has to buy, then he buys and 
sells to cover.  Market makers usually do not go naked on
options positions.

This week has been a frustrating week for most option traders
since the best thing for most beginners to do has been 
nothing.  Covered call writing can sometimes be profitable
in a sideways market, but the call premiums on most stocks
have been so low that they are hardly worth writing.  

Since many tech stocks have been flat or in a down trend in 
the last few weeks some put premiums are higher than the call
premiums.  You might make more money by selling puts than
buy writing covered calls.  However, selling naked puts has 
the risk that you will end up owning the stock and incurring
a substantial loss if the stock drops significantly.  It is 
usually not a wise strategy to use in a downward trending 
market. 

There are some ways to protect yourself if you want to sell
a put.  The most common is probably a bullish put credit 
spread.  This means that you are selling a put and buying 
another put which is less expensive.

I bought some two year leaps on my favorite stocks this 
week.  I lost a couple of points on some of them but I think
they could triple over the next six months.  I was thinking
of Dow and Nasdaq straddles, but the indexes have not been
flat long enough for both premiums to be profitable. 

AMG Data reported that equity funds actually showed net
redemptions of 555 million for the week ending May 3, 2000. 
Large cap growth funds showed inflows of 1.2 billion, small
cap growth funds showed outflows of 690 million.  Technology
funds did report inflows, but large cap equity index funds
showed outflows of approximately 264 million.  This would
be a disturbing trend if it continued for a long period of
time, however it may be indicative of investors' hesitation
to jump back into the market before the Fed meeting.  While
April did have a week of net outflows from funds, the month
showed positive inflows.

Contact Support



**************
TRADERS CORNER
**************

SKYBOX: An OEX Trader's Tool
By Austin Passamonte

Have you seen the new Skybox format? Is that a big improvement
or what! The team at Pinnacle along with OptionInvestor have
continued to provide cutting-edge tools for the trade. Now
what excuse will I have to give Wendy for my underperformances? 

An e-mail inbox full of messages tells me more than a few 
traders still have questions to the mechanics of how Skybox
operates. Again, I'm just an independent trader giving my 
interpretation of this methodology; I expect you might begin 
to see further instructions within the Skybox link soon.

That being said, let's try to clear up some cobwebs in a concise
manner. The Skybox lists three different benchmarks for each
new trading day ahead. The objective is to purchase the 
recommended call and put options listed for the suggested 
price or less when the OEX index trades into or through that 
benchmark level. 

It does not matter if the market is going up or down - if the
key bullish or bearish benchmark is hit AND the listed option
can be had for the given price, we're in. Focus on that. If the
market itself is rising and trades into a bearish trigger, we
buy put options if their price level can be met. By the same token
when the market is falling and it hits a bullish trigger we buy
call options if the price limit can be met. 

The premise is that these benchmarks are potential points
of resistance or at least market exhaustion, and a reversal
is likely. The only time trades are ignored is when the OEX 
gaps past a benchmark without trading through the levels. In 
other words if the market closes at 761 and gaps down to 755
at the open, we stand aside unless the index trades back into
the 758 level and our option price can be met.

When observing the action here you will notice many times,
maybe even a majority the index hits a trigger point and the
option price bid/ask is above suggested purchase. This means
volatility lies in favor of the sellers. On large-range days 
for the OEX it's common for either calls or puts to be skewed in 
volatility, meaning the target price for one side of the trade
may be available but not on the other. On Wednesday this week 
as the OEX fell from 778 to 751, the option chain my broker offers 
showed put options at the benchmark were valued in the low 30's 
while calls at the same point were listed in the high 30's for
implied volatility. I'm no expert on vega or the greeks, I only 
know that which I observe real-time. This may explain why certain 
plays can be executed or not during volatile trading days.

If the market trades through both the bullish and bearish signals 
at a given benchmark and each options' price is met, the trader 
buys both and holds a "long strangle". With stop loss orders in 
place we hope the index will decide to take off in either direction, 
stopping out the losing leg while the other runs deep into the
money.

Should the market decide to chop around the benchmark, we must
bite the bullet and attempt to repurchase any stopped positions
the index trades through again each time purchase conditions 
permit. Eventually the darned OEX will make up its mind and run 
off in either direction hopefully with us aboard!

That is the very best I can do to explain the basic outline;
further questions will be answered in future articles, the 
Skybox site and most importantly of all, self-study of the index
and system on your part over time.

When I sat in on Austin Tanner's sessions covering the Skybox
in Denver this spring, he stated (I'm paraphrasing) that the 
Skybox is a good method for trading in itself, but perhaps the
best use for it is a training tool. I couldn't agree more. I 
mentioned before that trading the system verbatim isn't easy for
a number of reasons, and it's certainly not for everyone. On
the other hand, any person who trades the OEX can use the Skybox 
as a crucial tool in their repertoire.

Objective-style traders can learn the nuances, set up to trade
the model exactly and should make money. Experienced traders
who prefer a more subjective style and beginners just getting
started can use it as a guideline to trade some high-percentage
winners with patience and preparation added to the mix.

Commonly, a few days each week offer good opportunities for
high-odds OEX trades that should break-even or win roughly 80%
of the time and yield 2 - 5 points in profit. This is done based
upon following the Skybox benchmark triggers with intent to
take small, safe chunks from the middle of most solid moves. 
We need to be content here with a risk/reward ratio of 1/1 and
that means we must profit 60% of the time to at least break 
even after commissions. More about that tomorrow.    

Here is the basis of our strategy; the OEX benchmarks listed
in Skybox are suspected points of congestion that may offer 
support and/or resistance. One thing you'll notice when studying 
OEX charts of past movement or live action is the strong tendency
it has to chop around each benchmark. They act like gravity, 
tugging the index each way until the grasp is finally broken and
the market heads off into the sunset of profit. For heaven's sake 
don't just take my word for it! Look at any bar chart yourself 
and see if this is true. Do you notice what usually happens once
the market breaks free of the congested area? It tends to make a 
solid, steady move to the next one! Let's put this behavior work 
for us, shall we?

Say you are watching the OEX market looking for an entry 
point to capture the next move. The index is trading at 784 and
heading lower. Skybox rules specify you buy 790 OEX calls if the 
price is met at the 782 level. If it moves through and trips 
our 758 mark, we need to buy puts. However, before you pull the
trigger on any trade, perhaps you'd like to see the market 
commit directionally. Why don't we just let the market clear
this congestion and try to hitch a ride from there?

Options purchased at the Skybox trigger levels are priced
for sale when the next benchmark is approached. In other words,
if we buy a 770 put for 14.50 today and it moves in our favor,
by the time the suggested sale price of 22.5 is met the Index 
will be trading around the 764 - 763 level. This is true with
all of the listed options, they are initially priced to sell 
once they reach several points into the money. So, our OEX 
trading zone from purchase to sale in this case would be 778
to 764, give or take a bit. Most of the profit ratios are 40%
55% on the winning trades via Skybox. Would you be happy for
just part of that if fewer losses are involved?

A profitable tactic is to buy options in the direction the OEX 
is trading only AFTER clearing that direction's trigger level
by at least 3 points. You will notice from studying charts
and watching the OEX live that once it moves at least 3 points
beyond a trigger it seldom reverses and charges back deep through
the direction from which it came. I said seldom, not never! There
are clearly times when the index reverses and leaves your
trade in it's prop wash, so make setting those stops your first
priority upon execution!!! Once your order is filled, set the stop
2 1/2 points below your purchase.

Eight out of ten times the market will move in your favor.
Once the bid price of your position has increased 1.5 points or
more above your purchase, I strongly suggest moving your stop
loss up from below your entry and place it where you bought the
options to lock in a potential "free trade". 

What we try accomplishing here is just take the middle out
of a solid move. Once congestion at the benchmark is broken, we
want to enter the market WITH the established direction. Next 
order of importance is to protect the position in case we were 
wrong. Lastly, it's powerful to move up a trailing stop to
at least exit the trade with most of our capital intact. The
decision of when to take profits depends on your risk level
after that.

Alas, if only it were merely this simple! You must decide what
price you're willing to pay for these options and that depends
on how long you are willing to hold them. If the going price at
the benchmark was equal to or less than what's listed in Skybox,
you know it is still fair two or three index points away. When
higher than "fair value", you could still take the trade 
understanding that it must be closed WELL BEFORE the trading day
is over to capture those inflated premiums. Please don't sit on 
expensive options and watch the value peel away like this year's
first sunburn. I've done that enough times for both of us, so your
turn is already used up!

When option prices are high, one should only buy when inside the
Bid, and don't chase a market running away. Never buy at "ask" 
when the price spread is greater than  of a point, or 1 full point 
at the very most. It will make your stop loss too vulnerable to 
market noise. How do you buy inside the spread successfully? Place 
your "limit-buy" order halfway between the bid/ask spread. Keep 
in mind that the less you pay is more you earn upon sale. There
are plenty of excellent option tradingbooks for sale within this 
website that teach how, and every serious trader should have most
of them in the home library. I'll do my best to explain how I split 
wide bid/ask spreads a bit later on, and you'll hear successes and 
heartaches of missed trades as well. Stick with trading options 
one strike away from the money with good liquidity and this is 
seldom a problem. 

Back to our example. The OEX is falling from 784 to 783 and into
782. We do nothing but watch. It bounces off 782 a few times, 780 
a few times and surges down to 775. Are you convinced we might 
be headed further? Buy the 770 puts if you're comfortable with the 
price and lock in that stop loss. If the market continues falling, 
raise your stop loss to the purchase price and the "free trade"
is on! Of course, if the market were to reverse and gap through
the stop you might lose a bit of money, but it's almost free.

Now decide where you want to exit. Are you content to take a 
quick 2-3 point profit and wait for the next move? If so, you 
should score a 70 - 80% success rate of profit or break-even. 
Prefer to ride out the entire move? Sell this position at or 
near the suggested profit mark given in the Skybox. Remember,
we missed a few points of potential profit on the front end 
because we bought late but the Skybox target remains intact.
Whatever you decide, keep those stops in place, Take profits 
when offered and for gosh sakes, sell any over-priced contracts 
ASAP!

Perhaps you'll find this directional trading a bit more to 
your liking than Skybox regimen verbatim. Each method offers
separate strengths and can certainly be profitable or costly 
depending on how we handle our part. Sunday we'll cover money
management strategies for trading each of these methods with 
maximum results, which will prove themselves by you doing the 
calculations yourself. Looking forward to visiting with you then,
and get those calculators ready!

Trade the right direction.



***********
OPTIONS 101
***********

It's Good To Be Back!
By Lee Lowell

The last six weeks have been very interesting to say the least.  
My wife was involved in an automobile accident at eight months
pregnant (she and baby were fine).  We moved residences two weeks
after that, had to find a new car, gave birth to my second 
daughter, and had to fight this awful bear market with too many 
open positions.  Talk about the levy breaking.  It has probably 
been the hardest/worst month of my trading career.  There are
some circumstances that you just cannot prepare for and if you
are in the trading business, this is why we preach strict money
management rules.  As I wrote in my last piece about the risks of
trading, I wish I was more adamant about following those rules.
As you never know what events will occur in your life, let's all
set those stops and keep the profits.

I want to talk about "synthetics" and "equivalent positions" as 
they apply to options trading.  "Synthetics" is a term that 
describes different option strategies that have the same outcome.
Did you know that a "covered call" and the sale of a "naked put"
will yield the same position?  They have the same risk/reward 
profile, yet your broker probably will only let you execute the 
covered call.  Let's break it down.  When you sell a covered call, 
your upside profit is limited once you hit your short call, and 
your downside loss is unlimited (to the point of the stock going 
to zero).  When you sell a naked put, your upside profit is 
limited to the amount of premium you sold the put for, and your 
downside loss is unlimited (to the point of the stock going to 
zero).  The absolute numbers will be different in the end, but 
the risk/reward is exactly the same - limited profit, unlimited
loss.  Sounds the same to me.
  
So what's the difference then?  Not much.  With a covered call, 
if the option expires worthless, you still keep your stock and you 
can repeat the process.  The naked put sale does not involve any 
stock transactions.  If the put expires worthless, you can also
repeat the process.  The covered call requires two transactions 
with two commissions.  The naked put sale requires only one 
commisssion.  The covered call requires you to spend the cash on 
the 100 shares of stock, which can be expensive.  The naked put 
requires no outlay of cash and you receive the credit right into 
your account.  And at times, put options usually have higher 
implied volatilities than calls because of the downside fear 
factor.  So you may get more bang for your buck by selling a put.  
So why won't your broker let you sell naked puts?  Once again, 
because of the downside fear factor and the "unlimited loss" 
potential.  Just the word "naked option" is taboo for most 
brokers.  You can get around this obstacle only if you have a 
large trading account and years of trading experience that 
satisfies the broker. You can even try to argue with your broker 
that both strategies are the same, but most of them still won't 
go for it.  

The naked put can also be used as a strategy to acquire a 
quality stock at a discount from today's price while receiving a 
credit into your account.  If you want to own IBM at $100 but 
it's trading at $125 today, you can sell a $100 put for $3
(example)and wait to see what happens at expiration.  If IBM is 
above $100 at expiration, you keep the $3 credit but you don't
get to buy IBM at $100.  If IBM is trading under $100 on 
expiration day, you will acquire 100 shares of IBM for $97 
($100 - $3 initial credit).  That's a great way to acquire a 
stock you want to own at a cheaper price.  And you get paid to
wait for the price to come down.  With a covered call, some 
people already own the stock from a prior period, so the sale 
of the call essentially reduces your initial cost basis.  For
those who are speculating with covered calls, then you must buy
the shares first and then sell the call.  Hence, the two 
transactions.

The same scenario applies to selling covered puts and selling
naked calls.  If you sell 100 shares of stock and sell a put 
for upside protection, it's the same as selling a naked call.
With the covered put, your upside loss is totally unlimited
because of the short stock, and the downside profit is limited 
once you hit your short put.  With a naked short call, your 
downside profit is limited to the premium received, and the 
upside risk is again unlimited.  The same rules apply to the 
number of transactions for these strategies as well.  Two 
commissions for the covered put, and one commission for the naked 
call.

Slightly off the subject here, but someone e-mailed a question 
recently about buying calls and selling puts. What's the 
difference they asked.  Yes, both strategies are bullish in 
nature, but that's where the similarity ends.  When buying the 
call, your risk is limited and your reward is unlimited.  When 
selling the put, your risk is unlimited and your reward is 
limited.  That's a big difference for most people.  Selling any 
option(call or put) has unlimited risk, but the decay factor is 
on your side and that's why people like to sell options.  But once 
again, you could lose everything you own when you sell options.  
When you buy an option, you may lose, but you'll never lose more 
than what you paid for the option.  Time is against you when you 
buy options, so timing is critical too.

Back to the synthetics.  Here's a list of equivalent positions:
(Note that all option strikes must be the same and same month of 
expiration.)

long put + long stock = long call
long call + short stock = long put
short put + short stock = short call
short call + long stock = short put
long put + short call = short stock
short put + long call = long stock

Let's take one of these equations and see how it works:

long call + short stock = long put.  

The characteristic of a long put consists of unlimited profit on
the downside and limited loss on the upside(the cost of the
option).  Now if you happen to be short 100 shares of stock, you
can buy a call against it to cap your loss on the upside.  But 
your downside profit is unlimited because you're short the stock 
which will keep making money on the downmove.  You will lose 
money on the long call, but you can't lose more than what you 
paid for it.  And if the price of the stock keeps dropping, your 
short stock profit will eventually overtake the loss on the long 
call.  It's the same as owning a put option outright.

long 1 IBM July $100 call + short 100 shares IBM = long 1 IBM
July $100 put.

Let's look at the outcome of the equation first, the IBM $100 put.
If IBM trades below $100, you make unlimited money on your long 
put once you pass your breakeven.  If IBM trades above $100, your 
put will expire worthless, but you lose no more than the price of 
the option.  Limited loss, unlimited profit.

If you are short 100 shares of IBM, your profit is unlimited 
on the downside once you pass the breakeven price.  Your loss is 
limited on the upside once your long call goes in-the-money.
Limited loss, unlimited profit.  Just note, whatever strike price
and expiration is used in the equation, the resulting option will
always have an equivalent strike and expiration.

Most of you are probably wondering why anyone would make the two
transactions in the equation instead of just doing the one.  It
comes down to mispriced options and arbitrage opportunities.  
This is a much more advanced topic and mostly concerns floor
traders who can quickly take advantage of these discrepancies.  
But for most of us off-floor traders, stick with the naked put/
covered call scenarios if allowed by your broker.

For anyone still interested in exploring the other synthetic
equations, check out Sheldon Natenberg's book, "Option 
Volatility and Pricing Strategies".

Good luck.

Contact Support



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DISCLAIMER
**********
This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in 
options. It is possible at this or some subsequent date, the 
editor and staff of The Option Investor Newsletter may own, 
buy or sell securities presented. All investors should consult 
a qualified professional before trading in any security. The 
information provided has been obtained from sources deemed 
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely 
information to its subscribers but cannot guarantee specific 
delivery times due to factors beyond our control.

The Option Investor Newsletter                   Thursday 5-4-2000
Copyright 2000, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


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*************
DAILY RESULTS
*************

Index      Last     Mon     Tue     Wed     Thu    Week
Dow     10413.12   77.87  -80.66 -250.99  -67.01 -320.79
Nasdaq   3720.24   97.42 -172.63  -78.14   12.97 -140.38
$OEX      756.81    9.70    9.70  -18.07   -4.37   -3.04
$SPX     1409.38   15.82   15.82  -31.19   -5.72   -5.27
$RUT      501.91   12.68  -13.58   -9.79    6.36   -4.33
$TRAN    2794.96    8.67  -16.15  -62.23   -1.49  -71.20
$VIX       35.43   -1.54    3.55    3.64    0.92    6.57

Calls               Mon     Tue     Wed     Thu    Week

EPNY       90.94   18.57    6.75   -0.88    0.44   24.88  New
EMLX       62.63    2.46    5.41    4.75    4.63   17.25  New
AFFX      150.09    8.94   -7.44    2.41   11.13   15.04  New
KANA       48.56    3.75    3.00   -3.56    2.81    6.00  Upgrades
AMD        90.50    0.88    1.31   -1.75    2.75    3.19  Strong
BRCM      175.31    1.88    7.75   -6.06   -0.63    2.94  Semis
SFE        44.75    7.63   -5.75   -0.94    1.69    2.63  5/10 earn
NOC        73.38    2.63   -0.56   -1.88    2.31    2.50  Waffling
ARBA       76.56    9.75   -9.38    3.56   -1.56    2.38  Hot B2B
SCMR       79.19    7.69   -4.13   -5.31    2.44    0.69  low vol
TIBX       89.59    3.69   -8.31   -1.31    6.47    0.53  On track
DHR        55.50    1.75   -1.13   -1.44   -0.81   -1.63  Dropped
QCOM      106.69    1.31    3.94   -2.75   -4.25   -1.75  Rumors??
GE        154.00    2.13    1.69   -5.00   -2.06   -3.25  Dropped
TER       104.94   -0.69   -1.31   -7.81    4.75   -5.06  Turning
NTAP       67.88   -2.94   -5.75    1.50    1.13   -6.06  5/18 earn
ADBE      113.94    9.75  -15.19   -2.75    1.19   -7.00  Entry??
GM         86.56   -0.94    0.69   -5.31   -1.50   -7.06  Dropped
MERQ       82.31   -1.25   -4.31   -2.50    0.38   -7.69  Turning
CMGI       63.06   -1.75   -7.13   -0.31    1.00   -8.19  Held $60
RMBS      204.69    2.94  -23.44  -10.00    5.19  -25.31  Comeback 
JNPR      183.00    6.25  -21.06   -3.00  -11.88  -29.69  At support


Puts

CTXS       45.50   -5.06   -7.38   -4.06    0.94  -15.56  Still bad
SNE       219.75    5.75   -6.32   -5.31    0.00   -5.88  New
BOBJ       94.63    2.93   -5.94   -3.50    3.25   -3.25  Recovery?
LOW        47.38    2.50   -1.13   -2.88   -0.63   -2.13  Sector
ADRX       55.38    2.75   -2.13    3.44    0.13    4.19  Dropped
HNZ        38.38    0.19   -0.25    3.69    0.75    4.38  Dropped


PICKS WE DROPPED
****************
When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time. 
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

DHR $55.50 -0.81 (-1.63)  Finally succumbing to the broad market
weakness, DHR just ran out of buyers.  We've been concerned
about the low volume over the past week, and it looks like it
finally caught up with our play.  We were counting on DHR to
bounce at support near $56 (also the site of the 10-dma), but
it wasn't to be.  Dropping hard at the open today, DHR tried to
recover in the afternoon, but just didn't have enough momentum
to get back over $56 and rolled over at the end of the day.
With the deteriorating market picture and failure at a key
technical level, we have to let DHR go tonight.

GM $86.56 -1.50 (-7.06)  Plagued by interest rate fears, GM's
engine has been sputtering over the past couple days.
Investors are nervous about the direction of the market and
without fresh fuel to motivate buying, shares of GM have
followed the broad market lower.  The opening weakness dropped
GM to support at $90 yesterday, and as the day progressed,
sellers won out over buyers and pushed shares of the auto maker
to the next support level at $88.  The late-day bounce enabled
the stock to close just above this support level, but the
weakness continued today, bringing GM down to close at $86.56,
very near the low of the day.  As if that weren't enough, volume
in GM has been strong over the same period while volume in the
overall markets has been lethargic.  Put it all together and it
doesn't look good in the near term--we'll get off here and wait
for another ride going in our direction.

GE $154.00 -2.06 (-3.25)  Ankle weights?  How else could you get 
a good swimmer to sink?  The fact is we never saw a good entry 
point on GE that would give us a payoff by Friday (the day GE 
effects its long awaited 3:1 split), thanks to the May 16th FOMC 
worries.  While $155 held as support yesterday, today's anemic 
market kept GE's volume on the low side and sent the stock as low 
as $153.  Since GE mirrors the whole market, and whole market is 
having trouble treading water, without volume we just aren't 
getting the performance from GE we wanted.  If it weren't for 
tomorrow's split that takes place after the close(and veteran 
readers know we never hold over a split since stocks more often 
than not go into a post-split depression), we'd be closing this 
play anyway from lack of performance.  In a sideways to down 
market and buyers apparently on strike, rewards are harder to 
come by from event trading(splits, earnings). 


PUTS:
*****

ADRX $55.38 +0.13 (+4.19)  We held this put play on Tuesday 
because it tanked over $2 in the final ten minutes of trading.  
Yet on Wednesday, the sentiment changed as ADRX gapped up and 
continued higher, finding support at $54.  The test of $50 that we 
were anticipating was looking less and less likely.  Today's light 
trading in this issue gave support at $52 and it closed out 
strongly.  Given how these last two days went, we have lost faith 
in this put as the $50 level remains elusive.  We gave it some 
time but this slow mover is now a drop.

HNZ $38.38 +0.75 (+4.38)  Our put play in HNZ took a turn for the
worse in the past two days.  It all began late Tuesday when Dutch
food giant Unilever (UL) bid $18.4 mln for Bestfoods (BFO).
Analysts said that the bid from Unilever may spark a wave of
consolidation in the U.S. food industry.  Shares in several U.S. 
food companies surged after the news, including HNZ.  Eric Katzman,
food industry analyst with Merrill Lynch said, "From an industry
perspective, this is the consolidation catalyst that investors
have been anticipating."  With a market cap of $14 bln, HNZ is
seen as a prime takeover target or merger candidate.  The global
food industry has faced slow sales growth for the past decade.
Executives are under pressure to expand markets and cut costs.
As consolidation sweeps through the food sector, it's time to get
out of the way, and look for something else to chew on.



********************
PLAY UPDATES - CALLS
********************

AMD $90.50 +2.75 (+3.00)  Look at the beautiful daily chart!  
After a rough day on Wednesday, AMD came back strong today, even 
as volume remained weak across the board.  AMD found key support 
just above its 10-dma at $85.88;  its low was $86.  The trend is
intact and continues on, as the Semiconductor Sector($SOX) leads
the market.  AMD had a decent day considering volume was weak and 
that they actually received a downgrade today.  Yep, a downgrade!
Can you believe that?  Josephtal & Co. lowered its rating from a
Buy to a Hold.  Hey, why don't you jump out in front of a 
steaming freight train while you're at it!  Obviously, investors 
shook off that news, if they ever even noticed it in the first
place.  Looking at the technicals, short term support lies at 
$86 and $84.  Resistance above will come at $92 and then its 
all-time high of $92.38.  Target shoot on the dips for entry 
points based on individual risk levels. 

KANA $48.56 +2.81 (+6.00) Despite a quiet market, KANA is 
quietly inching higher.  It did sell-off with the market on 
Wednesday, but recovered most of that loss today and the 
pattern of higher-lows is still intact.  Some thanks is due 
to Chase H&Q who upgraded KANA from a Buy to a Strong Buy 
this morning.  This is the second upgrade this week after 
Goldman Sachs placed KANA on the Recommended List on Tuesday.  
Today's news pushed the stock above $50 briefly at the open 
before giving way to this continuing trend of little to no 
volume across the NASDAQ.  A breakout over $50 on volume 
should push the stock back to $55 so consider such a move as 
a potential entry point.  Support at $45 looks rock solid if 
bad economic numbers rock the markets tomorrow.  Just make 
sure it gives you a bounce first.

JNPR $183.00 -11.88 (-29.69) To sell...or to buy more?  That 
is the question.  JNPR sold off again today, pushing the stock 
right back to support at $180.  Fortunately, it held that 
level as buyers stepped in, which is confirmed by the volume.  
This is the reason we want to keep JNPR on the call list and 
give it a chance to rebound.  Anyone who knows JNPR well, 
knows that the bounces are big and worth a little extra risk 
to capture such a move.  Just don't let it get away if JNPR 
starts to breakdown below $180.  That is the point we will 
be watching as being a reversal and time to exit.  No special 
news out there to justify the recent downdraft so play it 
based on technicals.  Resistance at $200, support at $180.  
 
NOC $73.38 +2.31 (+2.50)  NOC will receive an award from the
Department of Defense Friday.  The Integrated Systems division of
NOC is being recognized for achieving $13.1 mln in annual cost
savings by implementing process initiatives.  The award stems
from NOC's efforts to streamline operations, cut costs, and
ultimately boost earnings.  The good news Wednesday didn't help
NOC as the stock fell with the broad market weakness.  But the
buyers returned Thursday to lift NOC back above its 5-dma and
close the stock near its day high.  Like the rest of the market,
volume in NOC has been anemic.  We'd like to see more buying
interest to confirm the advances, but we'll take any gains we can
get.  NOC will face resistance at $74 before retesting its
52-week high.  We saw some buying late Thursday afternoon, if the
buyers show up Friday morning, NOC might be able to take out
resistance.  Watch for a move above $74 as a possible entry
point.  The stock has found support twice at $71 in the past
week.  If NOC's stumbles Friday morning, look for a bounce off
support as another possible entry point. 

TER $104.94 +4.75 (-5.06)  A downgrade never helps a call play,
especially combined with weakness in every tech sector.
Josephthal & Co downgraded TER from a Buy to Hold on Wednesday.
The analyst with Josephthal downgraded TER because the stock had
reached their target price.  Anyway, the downgrade and weakness
in the semis pushed TER down to $97 Wednesday, then the buyers
stepped in.  Volume surged in the last hour of trading as the
stock recovered lost ground.  The momentum carried over into
Thursday as TER edged past $105 in early trading.  That level
proved to be resistance for the rest of the day as TER bounced
between $102 and $105.  We were expecting the release of sales
numbers for the semis Thursday, but the report was delayed.  We'll
continue to watch for the release of the March sales report.
An event that may carry TER higher is the earnings report from
semi behemoth AMAT, scheduled for next week.  We'll want to watch
TER closely early Friday morning.  If the stock clears resistance
at $105, we could see smooth sailing up to the $110.  There is
very little resistance standing in the way after Wednesday's
sell-off.  But if we get some nasty economic data Friday, TER will
most likely find support at $102.50 and again at $100.  Look
for entry points if TER moves above resistance, or bounces from
support.  Consider your risk level before entering the play, and
confirm direction in other semis such as AMAT, LRCX, and KLAC.

ADBE $113.94 +1.19 (-6.50)  Investors fled the technology sector
Wednesday as fears of inflation combined with a profit warning
from Novell (NOVL) sent tech stocks tumbling.  The enterprise
software maker NOVL said it would fall short of Wall Street
expectations.  ADBE also suffered from additional weakness in
MSFT.  The uncertainty surrounding Mr. Gates and company
continues to hamper the software sector.  With all the negative
news and weakness in the tech sector, ADBE managed to remain
within its ascending channel.  The bottom of the range was hit
Wednesday when ADBE sank just below $105.  Traders decided that
was far enough, as a wave of buying rescued ADBE late Wednesday.
The buying interest carried over into Thursday's trading as ADBE
touched $115 before selling-off later in the day.  Every time
ADBE has hit the bottom of its trading range in the past month it
has quickly rebounded to retest its highs.  This may prove to be
a good buying opportunity, but we want to proceed with caution
ahead of the economic data out Friday.  From here, look for a
bold move above resistance at $115 as a possible entry point.
Additionally, if the market weakens Friday morning, look for a
bounce off support at $110.

ARBA $76.56 -1.56 (+2.38)  Keeping the upward trend intact, ARBA
is actually looking pretty good this week.  In the face of the
wild market gyrations yesterday, the stock bounced repeatedly at
$73 before moving sharply higher as the NASDAQ recovered late in
the day.  The recovery continued this morning, but unfortunately
there wasn't enough follow through and the stock rolled over
again at the $83 resistance level.  ARBA is presenting us with
a bullish technical pattern that is usually very reliable. While
the highs are running into the same resistance level, the stock
is posting consistently higher lows right on the ascending
trendline.  ARBA is perched between the 5-dma ($77.50) and the
10-dma ($72.38), and looks like it will break out to the upside
in the next 3-4 trading days as the resistance line and
ascending trendline converge.  Look to enter new positions as
ARBA bounces from the $73-74 level, confirmed by increasing
volume.  If you want to play it a little more conservatively,
wait for buyers to push the price through resistance before
moving in to profit from the breakout.

CMGI $63.06 +1.00 (-8.19)  After having the rug pulled out from
under its feet early in the week, CMGI is showing good support
at $62 as the 10-dma hovers at $62.50.  The afternoon meltdown
on the NASDAQ yesterday afternoon pushed shares of the Internet
incubator company below $59, but the rebound was quick and
decisive, coming on strong volume.  Continuing higher this
morning, there were not enough buyers to push through the $65
level, but the sellers were not powerful enough to break support
again for the remainder of the day.  Volume in the markets
remains light and this is reflected in stocks like CMGI which
posted a very light volume day at only 3.7 million shares.
Possibly contributing to the strength today was positive news
from AltaVista, the premier Web-wide knowledge resource on
the Internet.  CMGI holds a majority ownership in the company,
and the announcement of technology advancements and new product
launches targeted at Web enthusiasts should serve to support
CMGI going forward.  Use intraday dips to support as
opportunities to open new positions, but watch the volume; it
continues to be a good indicator of the strength of price
moves, whether up or down.

SFE $44.75 +1.69 (+2.75)  The uncertainty continued the past two
days in SFE and the overall markets.  SFE did drift lower early
yesterday, then turned sideways through the close today.  The
pattern developing in the intraday charts shows higher lows and
higher highs since Wednesday's bounce near the $40 level.  The
last fifteen minutes of today's trading provided encouragement as
well.  Over 77,500 shares were traded as SFE approached the $45
mark.  Not huge volume, but the most seen in any 15 minute period
all day.  Could it be our play is starting an earnings run?
Perhaps, SFE is due to report earnings before the open on
Wednesday, and will hold their annual stockholders meeting on
Thursday.  Normally, we would suggest the move late today set
SFE up as a solid buying opportunity, and it very well could.
However, with the economic data due out in the morning all bets
could be off, if its a negative report.  If investor sentiment
is positive in the morning we would look for chances to jump in.
Technically, support is found between $41 and $42, and any further
bounces accompanied by better volume could also be viewed as a
chance to participate.

NTAP $67.88 +1.13 (-6.06)  As we said Tuesday the profit taking 
could continue, and it did to some extent yesterday.  NTAP fell
about $4 yesterday to support at $61.50 and found buyers
ready to take their turn.  Have we put in a short-term bottom?
For now it would appear that NTAP has caught its breath, and
could be setting up for a bit of a rally.  However, don't pin
your hopes on the volume, at least at this point.  With only
2.9 mln shares traded today, the number of buyers wasn't
exactly staggering.  Several things could affect the moves in
NTAP in the upcoming days.  First, the FED fears and economic
data due out tomorrow and next week.  On a more positive note
the networker is scheduled to report earnings May 18th after
the close.  At current levels NTAP could be viewed as a great
buying opportunity and make a move higher into earnings.  If
negative sentiment or empathy continues to apply pressure to
the markets, then we could have a tough road to hoe.  More
conservative investors may want to wait for a breakout over
$70 accompanied by volume before entering new positions, while
target shooting at current levels would be acceptable as well.
A decline below $65 and a retest of recent lows maybe ahead.

RMBS $204.69 +5.19 (-25.31)  The knife fell a little further
than we thought, but it did finally stick at $185.  The bounce
late Wednesday did provide a good entry point for a new play.
Now the question of to sell or hold, may be the running through
the mind of those that jumped in.  Well, that's a matter of
personal preference.  After the spike up to $217 early today
RMBS remained range bound between $200 and $210 for the balance
of the session.  The plus we see at this point is the volume
did pick up the last two days, on the selling yesterday and
the buying today.  Another potential positive for our play
is the upcoming special board meeting on May 23rd.  The board 
has asked for an increase in the number of authorized shares, and 
if approved, would result in a 4-for-1 split of the company's
stock.  Another potential plus is that the sentiment in the
$SOX index is improving somewhat.  However, with the lack of volume
in the broader markets we would be careful about hanging our
hat on sentiment until the numbers improve.  Support is now
sitting at $200 and yesterday's low at $185. A move up through
$215 and we may see a new trend develop. 

MERQ $82.31 +0.38 (-7.69)  Ok, so it's been like watching paint
dry the past two days.  The real positive about this one, at
least for now, is how the $80 level has held.  Granted the number
of folks trying to push the price lower hasn't been that strong,
but the fact there has been buying show up really is a plus.
Also a bit of good news came in the form of a recommendation
from Goldman Sachs.  After doing so much damage to the retail
sector yesterday, analysts at Sachs initiated coverage of MERQ,
adding the company to their Recommended List, and projected a 
price target of $110.  They feel MERQ has the unique ability to
offer a full range of products aimed at eBusiness application
testing and performance monitoring.  Another tidbit to keep in
the back of your mind is the upcoming annual stockholders meeting
on May 24th.  The company has asked for approval to increase the
number of authorized shares to 240 mln.  If the buying boycott
ends in the broad markets we would look for MERQ to fly.  If 
not, continued bounces off the $80 area may provide a good entry
as well.  

SCMR $79.19 +2.44 (+0.69)  Following Tuesday's downdraft we noted 
that you may want to consider getting out if the price dipped 
under $78 with the idea of getting back in at the 5-dma support 
(then $74.73).  If you did, congratulations, especially if you 
sold at the open this morning when SCMR reached $83 despite this 
currently flat market.  Alas, volume remains low, which means 
range-bound trading is likely to continue until something gives 
investors a reason to buy.  Maybe that reason could be CSCO 
earnings on May 9th, which might have a sympathy play effect on 
SCMR.  If that isn't enough, SCMR itself has earnings on May 
18th, and we may be lucky enough to see an earnings run.  Of 
course, the broader market still may keep a lid on the upside 
unless some fabulous employment news comes out tomorrow.  
Historical support still remains around $74, however the 10-dma 
of $72.55 may make a better target at which to shoot if the 
market remains in a funk.  Conversely, the 5-dma of $80.54 is now 
above the current price and may offer slight resistance.  The 
good news is that SCMR has sloughed its neutral wedge in favor of 
an ascending wedge--a breakout with volume may be near.

TIBX $89.59 +6.47 (+0.53)  Did you set your stop?  TIBX had plenty 
of room to fall given the 10-dma way back under $75.  It fell 
right through in yesterday's trading, touching a low of $72.  
OUCH!  However, near yesterday's close and continuing today, TIBX 
staged a strong comeback and even cleared mild resistance at $88.  
Nonetheless, volume remained just average telling us there is no 
major conviction with this move.  The next resistance is $95.  
Intraday support is at $84.50, however the 10-dma, currently 
$80.86, has been holding up nicely over the last 10 trading days.  
Now that TIBX has moved back into (on the low side) its ascending 
channel, target shoot where you are comfortable.  While there is 
no TIBX specific news, but CSCO, which owns 7% of TIBX, has woven 
TIBX software into some of its new equipment and will report 
earnings on May 9th.  What's good for CSCO should also be good 
for TIBX.

BRCM $175.31 -0.63 (182.00 +7.75 (+9.63)  Another day, another 
chip--that's all we ask!  Following up Tuesday's announcement of 
an new optical chip, today, BRCM unveiled a 2-way set top box 
chip, further blurring the line between TV and PC.  Presumably, 
it could also function to allow telephone calls to be made over 
existing cable systems.  Anyway, pesky resistance at $180 is 
proving hard to penetrate in this sideways to down market.  
Volume too tapered down telling us there is no conviction to 
carry this issue higher right now.  However, any change in market 
sentiment should propel BRCM higher.  It has already tested $165 
support and won.  In our opinion, that was a buying opportunity 
given the low volume and solid rebound.  It finished solidly off 
today's low too.  Intraday support at $170 provides a nice target 
at which to shoot.  Resistance remains strong at $180, then $185.  
While earnings aren't coming around again until July, BRCM is a 
split candidate.  Watch for tomorrow's employment numbers first 
before taking a position.  They could change the whole market 
sentiment.

QCOM $106.69 -4.25 (-1.75)  Just when we thought it was safe to 
get back in the water, the new bullish trend on QCOM takes a 
breather.  The QCOM story is still good.  But even a helium 
balloon goes down in a descending elevator.  In short, the issue 
like most others is suffering from lack of volume borne of FOMC 
rate hike fears ahead on May 16th.  Buyers are on strike.  Now, 
as for the rumored news that NOK would make a buyout bid for 
QCOM, there doesn't appear to be any credible evidence that will 
happen, which may also account for QCOM's slip in volume to just 
60% of its ADV, and corresponding slip in price.  QCOM has good 
support at $105, but can easily slip under $100(also good 
support) in a downdraft.  Currently it sits just a whisker over 
its 10-dma of $106.43.  If it holds and the market rebounds, you 
can consider an entry at current levels.  However, you may want 
to target shoot for the best entry at $100 support(or less) if 
we get a selloff based on bad employment figures.  Mild 
resistance is $113, then $120.  Confirm market direction first.



*******************
PLAY UPDATES - PUTS
*******************

BOBJ $94.63	+3.25 (-3.25)  Yesterday, BOBJ traded down with the 
rest of the market, hitting a low of $88.88.  It was at this point 
in the day that the NASDAQ made a strong rebound from its 3600 
level, bringing with it most of the tech issues.  Today, the 
buying continued, taking the stock as high as $97.50 where it 
could not hold.  By midday, BOBJ had rolled over and traded 
tightly around $93.50.  A late session surge over $95 could not 
be sustained and has BOBJ perched on its 100-dma of $94.38.  Its 
10-dma of $96.44 remains above the current levels.  BOBJ may 
encounter resistance at the 10-dma, and certainly above that at 
$100.  Target shoot for aggressive entry on short term spikes.  
More conservative entries can be taken once BOBJ asserts itself 
below it 100-dma.

CTXS $45.50 +0.94 (-15.63)  A cold earnings warning from
enterprise software maker Novell (NOVL) sent a shiver through the
software sector Wednesday.  Additional weakness in MSFT also
added to the CTXS's problems.  The stock hit a low of $42.31
Wednesday afternoon before being carried higher by the rash of
buying late in the day.  CTXS released several pieces of news
Thursday.  In two separate press releases, the company said it
expanded its licensing agreement with RSA Security, and
established a contract negotiation mechanism with several large
Application Service Providers.  The press releases may have acted
as a cushion Thursday, preventing CTXS from falling further.
Noting the weak volume Thursday, the rally may be a bit
artificial.  Down volume has far outpaced up volume in the past
week.  With that said, we're looking for more downside from here.
Two possible entry points to watch for would be a breakdown below
support at $45, or for a more conservative entry, a breakdown
below support at $42, either way confirm any downward move with
heavy volume.

LOW $47.38 -0.63 (-2.13)  We see two things occurring in this 
play.  First, yesterday's downgrade of the retail sector by
Goldman Sachs added profits for those who took advantage of
Tuesday's bounce to the $52 area and bought puts.  The second
thing showing up on the radar screen is the lack of any real
follow-through selling today.  So what's all this mean.  Well
the trend is still south.  However intraday charts show a stock
that's trying to find a bottom.  Does that mean the play is over?
Absolutely not.  It means no one is willing to step up and buy,
but it also suggests sellers are taking a break, for now.  There 
is little support between the current price and the $40 mark.  
All it will take is a move below $46 and things could get ugly.
If buyers do show up we would again look for resistance in the
$52 area.  Keep in mind Lowe's is scheduled to report earnings, 
on May 15th, so any good news that comes in the market could
give the hardware company a boost. 



**************
NEW CALL PLAYS 
**************

EMLX - Emulex Corporation $62.63 +4.63 (+17.25 this week)

Emulex designs three types of network connectivity products:
network access servers, printer servers, and high-speed fibre
channel products.  Its LightPulse fibre channel adapters and
hubs provide high-performance interfaces for computer networks.
EMLX's network access servers enable remote access to WANs, and
its printer servers connect directly to LANs, enhancing network
performance.  EMLX sells its products mainly to equipment
manufacturers and distributors.  IBM and Compaq account for 19%
and 14% of sales, respectively.

Like Dennis Rodman, EMLX knows how to rebound.  Since hitting
bottom during the mid-April meltdown, EMLX has gained nearly
50% in the last three weeks.  In the face of the weakening tech
sector, EMLX has shown unprecedented relative strength.
Thursday marks the fourth straight day that EMLX has charged
higher.  Unlike every other stock on the NASDAQ, EMLX has
managed to climb higher on heavy volume.  In fact, traders
exchanged nearly three times the ADV on Thursday.  What we're
looking for from EMLX is for the stock to fill its gap down from
April 14th.  EMLX closed the previous day at $83, the stock
subsequently gapped down and opened at $63 on the 14th.  That
means there is very little resistance, if any, preventing EMLX
from bolting higher, and filling its $20 gap.  EMLX cut into the
empty void Thursday by reaching a day high of $65.88.  If we get
some cooperation from the employment number scheduled to be
released Friday, EMLX could take-off.  A word of caution though,
the economic data is a double-edged sword.  If the numbers spook
Wall Street Friday morning, and inflation rears its ugly face,
traders may lock in their profits from EMLX's recent rally.  If
EMLX falls to profit taking, the stock will find support at $60
and again at $57.50.  The name of the game here is be on your
toes, and pick your entry point carefully.  Watch for a strong
move above $65 and confirm with heavy volume.

EMLX's competitors such as BRCD and NLCS showed solid gains
Thursday.  The strength in the computer-networking sector
could pave the way for a strong rally.  With one the highest EPS
and relative strength ratings in the sector, and a relatively
low P/E ratio, investors feel EMLX is oversold at its current
levels.

BUY CALL MAY-60*UMQ-EL OI=894 at $6.50 SL=4.50
BUY CALL MAY-65 UMQ-EM OI=379 at $5.00 SL=3.00
BUY CALL MAY-70 UMQ-EN OI=340 at $4.00 SL=2.50
BUY CALL JUN-70 UMQ-FN OI= 57 at $9.25 SL=6.25

Picked on May  4th at    $62.63    P/E = 82
Change since picked        0.00    52-week high=$225.50
Analysts Ratings      2-4-1-0-0    52-week low =$ 11.13
Last earnings 03/00    est=0.18    actual=0.20
Next earnings 08-07    est=0.20    versus=0.10
Average Daily Volume = 2.69 mln
/charts/charts.asp?symbol=EMLX


AFFX - Affymetrix Inc. $150.09 +11.13 (+15.03 this week)

AFFX has established itself as a worldwide leader in the 
field of DNA chip technology.  The Company has developed and 
intends to establish its GeneChip system as the platform of 
choice for acquiring, analyzing and managing complex genetic 
information in order to improve the diagnosis, monitoring and 
treatment of disease.  The Company's GeneChip system consists 
of disposable DNA probe arrays containing gene sequences on a 
chip, certain reagents for use with probe arrays, a scanner 
and other instruments to process the probe arrays, and software 
to analyze and manage genetic information from the probe 
arrays.  The company sells its products to Drug and Biotech 
companies involved in gene research.

The free-fall in the Biotech sector, which began in early March,
finally reached bottom in mid-April.  And stocks like AFFX are
leading the recovery.  Providing the products and information
needed by companies involved in genetic research, AFFX is well
positioned to profit from the growth in the sector, much like
companies like CSCO and EMC are profiting from the growth of
the Internet.  Dropping from a high of $327 to a low near $85,
AFFX has recovered nicely in the past 3 weeks.  Moving steadily
higher, supported by the revival in the Biotech sector, the
stock is posting higher highs and higher lows on average volume.
Although volume is not that strong, it is a good sign in light
of the very light volume which is pervading the broad markets
as they anticipate the next interest rate increase.  Still
trading more than 50% off the highs of two months ago, AFFX has
moved through resistance between $130-135 and we need to see
this level hold as support going forward.  The strong move
today has pushed AFFX solidly above the 200-dma ($140.50) and
is reinforced by the 5-dma ($141) which has now crossed through
the 200-dma.  New entries can be considered as AFFX pauses to
consolidate above the 200-dma and intraday dips are buyable as
long as this support level holds.  AFFX is sitting right up
against resistance at $152, and the next level to break through
will be $160.  A more conservative entry approach would be to
wait for AFFX to confirm the strength of its current move by
breaking above current resistance before playing.

GeneLogic Inc., a leading provider of genomic information,
announced on Monday that they will exercise an option in their
GeneChip agreement with AFFX to include access to custom GeneChip
probe arrays.  GeneLogic will provide proprietary information
from its internal sequence database to AFFX so that the company
can design and manufacture a series of custom arrays.  These
custom arrays will allow AFFX to expand their current 60,000
human gene set, which consists of current sequences emerging
from the Human Genome Project.

BUY CALL MAY-150*FIQ-EZ OI=947 at $15.13 SL=11.00
BUY CALL MAY-160 FUE-ES OI=144 at $11.13 SL= 8.25
BUY CALL MAY-170 FUE-ET OI=212 at $ 8.00 SL= 5.75
BUY CALL JUN-150 FIQ-FZ OI= 54 at $26.50 SL=19.75

SELL PUT MAY-135 FIQ-QG OI= 12 at $7.13 SL=10.00
(See risks of selling puts in play legend)

Picked on May 4th at    $150.09     P/E = N/A
Change since picked       +0.00     52-week high=$327.00
Analysts Ratings      2-6-2-0-0     52-week low =$ 32.50
Last earnings 04/00   est=-0.26     actual=-0.14
Next earnings 07-20   est=-0.12     versus=-0.32
Average Daily Volume = 1.07 mln
/charts/charts.asp?symbol=AFFX


EPNY - E.Piphany Inc.$90.94 +0.44 (+24.88)

E.Piphany, Inc. is a provider of web-based software solutions 
that enable companies to get, keep and grow customer 
relationships.  The E.Piphany E.4 system is an integrated suite 
of software solutions that allow businesses to collect, analyze 
and act on customer data from existing software systems as well 
as third-party data providers. Business users throughout the 
company have the ability to continuously identify and 
differentiate customers, then customize and personalize products, 
services and interactions based on customers' wants and needs. 
E.Piphany, Inc. is headquartered in San Mateo, California.

Talk about holding up well under pressure, this CRM(customer 
relationship management) software maker has moved up $21 since 
Monday's open while the rest of the NASDAQ market has shed 210 
points.  EPNY has been a clear winner in this sideways market, 
especially since hitting a recent bottom at $43 on April 17th, 
when it beat the Street's earnings estimate by 38%.  Revenues 
were up over 61% sequentially and over 660% from last year.  It 
doesn't hurt that it's also a member of the B2B infrastructure 
sector, which has held up well in recent days (see TIBX) too.  
HWP, CSCO, and EK all use its products.  Technically, EPNY is 
really strong and has held its 5-dma, currently $84.70, all this 
week, while other tech stocks got killed.  Thus, in addition to 
its big time ramp up, it has relative strength too.  Historical 
support is at $65 and $80.  More recently support can be found 
intraday at $85 and $87.  Resistance is at $100.  EPNY is however 
extremely volatile and can have $20 price swings, even in the 
current flat market with low volumes.  If you are not well-
seasoned in this kind of environment, you may want to pass the 
trade up in favor of something more stabile--THE SPREADS ARE 
HUGE!!!.  We suggest target shooting to get the best entry.  Just 
be sure you see a bounce first so that the price doesn't continue 
south after you take a position.

Not much in the news.  Even the company web site hasn't posted an 
article since April 17th earnings.

BUY CALL MAY- 80*PEY-EP OI=187 at $16.75 SL=12.00
BUY CALL MAY- 90 PEY-ER OI=111 at $10.63 SL= 7.75
BUY CALL MAY-100 UEP-EU OI=201 at $ 6.50 SL= 4.50
BUY CALL JUN-100 UEP-FU OI= 55 at $11.75 SL= 8.75

SELL PUT MAY- 80 PEY-QP OI=  1 at $ 3.13 SL= 5.00
(See risks of selling puts in play legend)

Picked on May 4th at  $ 90.94     P/E = N/A
Change since picked     +0.00     52-week high=$324.88
Analysts Ratings    3-4-0-0-0     52-week low =$ 38.00
Last earnings 04/00 est=-0.22     actual=-0.16 surprise=38% 
Next earnings 07-17 est=-0.16     versus= N/A
Average Daily Volume =  578 K
/charts/charts.asp?symbol=EPNY



*************
NEW PUT PLAYS 
*************

SNE - Sony Corporation $219.75 +0.00 (-5.88 this week)

If you like to be entertained, Sony has your fix.  Its
PlayStation home video game system alone accounts for about
11% of the electronics and entertainment giant's worldwide
sales.  As the #2 consumer electronics firm, SNE makes a host
of products including cameras, DVD players, MiniDisc and Walkman
stereo systems, computers, TVs, and VCRs.  Rounding out the
company's assets are Columbia TriStar and record labels Columbia
and Epic.

Remember a couple months ago when SNE saw their share price drop
right after the release of the new PlayStation2?  Well, the
problems that appeared shortly after the game unit's release
have yet to be resolved.  With the wide range of products and
services provided by SNE, you'd think there has to be more to
the story than that, and you'd be right.  In case you've
forgotten, we are still in earnings season, and SNE had a less
than stellar report in late April.  Profits for the latest
fiscal year fell 32%, led lower by a 43% decline in operating
profits for SNE's game unit.  The drop was largely due to
startup and launch costs of the new PlayStation2.  Although
sales continued to be strong across most of the company's
product lines, the strength of the yen served to impact revenues
outside of the Japanese market.  Taking another shot at their
own feet, company officials stated that they expect higher
sales revenues in the year ahead, but are expecting a drop in
net profit.  This is not the type of pronouncement that
motivates investors, and the results, although not surprising,
can be seen in the stock chart.  Stuck in a continuous downtrend
since late March, SNE was finding support at $225...until
yesterday that is.  Instead of bouncing at support, the share
price continued down, not even pausing until reaching the $218
level.  Along with the broader markets, SNE is seeing anemic
volume, barely half of the ADV--even though it is more than 30%
off its highs of only 2 months ago, nobody is in a rush to buy
the shares at these levels.  Resistance will likely be found at
$225, followed by $234, and any bounce to these levels should
provide an attractive entry point.

BUY PUT MAY-220*SMW-QD OI=103 at $9.50 SL=6.75
BUY PUT MAY-210 SMW-QB OI=118 at $5.50 SL=3.50

Average Daily Volume = 395 K
/charts/charts.asp?symbol=SNE



**********************
PLAY OF THE DAY - CALL
**********************

MERQ - Mercury Interactive Corp. $82.31 +0.38 (-7.31 this week)

Mercury Interactive Corp. is the leading provider of Web
performance management solutions that help e-businesses deliver
a positive user experience.  Mercury Interactive solutions enable
its customers to turn Web application performance, scalability
and user experience into competitive advantage. The company's
performance management products and hosted services are open 
and integrated to best test and monitor business-critical Web
applications.  

Most Recent Write-Up

Ok, so it's been like watching paint dry the past two days.  The 
real positive about this one, at least for now, is how the $80 
level has held.  Granted the number of folks trying to push the 
price lower hasn't been that strong, but the fact there has been 
buying show up really is a plus.  Also a bit of good news came in 
the form of a recommendation from Goldman Sachs.  After doing so 
much damage to the retail sector yesterday, analysts at Sachs, 
initiated coverage of MERQ, adding the company to their 
Recommended List, and projected a price target of $110.  They feel 
MERQ has the unique ability to offer a full range of products 
aimed at eBusiness application testing and performance monitoring.
Another tidbit to keep in the back of your mind, is the upcoming 
annual stockholders meeting on May 24th.  The company has asked 
for approval to increase the number of authorized shares to 240 
mln.  If the buying boycott ends in the broad markets we would 
look for MERQ to fly.  If not, continued bounces off the $80 area 
may provide a good entry as well.  

Comments

Hellooooo, $80.  One look at a chart of MERQ for the week and 
you can see that it had no intention of trading below $80 in 
this most recent retracement.  The stock held firm at this 
support level accompanied by good volume.  Now it appears to 
be rounding out which suggests the next move is up.  The one 
wild card will be the Jobs report due out before the open on 
Friday.  A negative impact could rock the markets and stifle 
any call plays on any stocks.  The flip side of the coin is 
the VIX which hit 36 today, meaning a relief rally may be 
imminent despite the economic numbers.  

BUY CALL MAY-80*RQB-EP OI=459 at $8.00 SL=5.50
BUY CALL MAY-85 RQB-EQ OI=217 at $6.25 SL=4.50
BUY CALL MAY-90 RQB-ER OI=350 at $3.50 SL=2.00
BUY CALL MAY-95 RBF-ES OI=173 at $2.88 SL=1.38
BUY CALL JUN-90 RQB-FR OI= 40 at $8.50 SL=6.00

Picked on Apr 16th at    $58.75    PE = 205
Change since picked      +23.56    52-week high=$134.50
Analysts Ratings      9-3-1-0-0    52-week low =$ 12.25
Last earnings 04/00   est= 0.11    actual= 0.10 
Next earnings 07-13   est= 0.12    versus= 0.09
Average daily volume = 1.55 mln
/charts/charts.asp?symbol=MERQ



************************
COMBOS/SPREADS/STRADDLES
************************

Title:  No Optimism In The Pits...

Wednesday, May 3

Equity markets slumped today on concerns about upcoming economic
data and fears of rising interest rates.  The Dow closed down 250
points at 10,480 and the Nasdaq Composite fell 78 points to 3707.
The S&P 500 Index slid 31 points to 1415.  Trading volume on the
NYSE was light at 992 million shares with declining issues ahead
of advances by about 2-to-1.  Late-day buying increased volume on
the Nasdaq to 1.47 billion shares with declines beating advances
more than 2-to-1.  The 30-year Treasury plunged 1 12/32, bid at
101 22//32, where it yielded 6.11%.


Tuesday's new plays (positions/opening prices/strategy):

Nabors      NBR   MAY35P/MAY37P   $0.50   credit   bull-put
Ashland     ASH   JUN30C/MAY35C   $3.88   debit    diagonal
Tuboscope   TBI   MAY15C/MAY17C   $2.12   debit    bull-call

The falling equity markets helped each of our new positions in
today's session.  Nabors was the first candidate and with the
issue opening lower, our target was adjusted accordingly.  A
number of contracts traded at $0.50 credit and a higher price
was available later in the day.  Ashland remained in a small
range for most of the session but there were numerous entry
opportunities.  Tuboscope was the most uncooperative issue of
the group, providing a barely acceptable opening debit (on a
simultaneous order basis).


Portfolio plays:

Stocks fell precipitously during today's session as concerns over
wage pressures and rising import prices rattled equity markets.
Selling pressure accelerated in afternoon trading after the beige
book showed that wage pressures are increasing and shortages of
labor exist across America.  Additional employment data is due
out later this week along with quarterly productivity data and
traders are also worried about Fed Chair Alan Greenspan's speech
on Thursday.  On a promising note, blue-chip stocks ended the day
well above their lowest levels with the Dow rebounding from an
early 300 point deficit.  Sadly, only five industrial components
closed the session positive.  On the Nasdaq, stocks declined in
all the major sectors.  Recent leaders in the Biotechnology and
Internet groups also slumped, extending Tuesday's losses.  In the
broad market, food, housewares and textile stocks advanced while
Healthcare, retail and footwear issues consolidated.

The majority of stocks in the Spreads/Combos portfolio moved
lower during today's trading.  Of course, our bearish positions
benefited from the downward movement with plays in both Omnicom
(OMC) and Temple Inland (TIN) improving during the session.  Our
straddle position in Applix (APLX) reached $9.00 credit, a $2.50
profit on $6.50 invested.  In the bullish category, Kelloggs (K)
managed a $0.62 gain as stocks in the food group moved higher on
merger speculation and Network Associates (NETA) is beginning to
rebound from a recent sell-off along with other companies in the
Internet Security Sector.  We have two positions, both with short
options at $25 in May, and the stock is trading near the area of
maximum profit.  We will attempt to roll forward to June options
during the next rally.


Thursday, May 4

Investors moved to the sidelines today as fears of upcoming 
economic data plagued the market.  The Dow Industrial Average
ended down 67 points while the Nasdaq composite index rallied
in the final hour to close up 12 points at 3,720.  The broad
market was nearly unchanged, with the S&P 500 Index closing at
1,409.  The Nasdaq reported its lightest session of the year
with 1.28 billion shares changing hands.  On the NYSE, only
915 million shares traded.  The 30-year U.S. Treasury bond fell
19/32, with the yield rising to 6.16%.


Portfolio plays:

The Spreads portfolio enjoyed a number of big winners today and
Sepracor (SEPR) was once again the top performer.  The bullish
issue rallied $8 to a recent high near $100 and as we commented
earlier in the week, our LEAPS/CC's play required an adjustment
to maintain maximum profitability.  The new diagonal position is
JAN60C/JUN95C at a cost basis of $30.00 and the new spread has no
upside risk.  Teradyne (TER) climbed $4.75 to $105 and Cypress
(CY) rose $2 to $51.50, both on strength on the semiconductor
sector.  The Oil Services group recovered from Wednesday's slump
with the majority of issues participating in the bullish move.
Halliburton (HAL) led that category with a $1.62 gain to end at
$47 and Nabors (NBR), Unocal (UCL) and Tuboscope (TBI) joined in
the rally.  Our small-cap leaders included Network Associates
(NETA), which closed above $25 after a second consecutive day of
gains, and Andrew Corporation (ANDW) which rose $1 to end at $28.
Magna International (MGA) also rebounded during the session,
climbing to the top of a recent channel near $48.  Our bullish
calendar spread will begin to profit as the issue nears $50.

The finance sector is starting to feel the effects of the upcoming
rate increase and two of our banking issues are beginning to fade
after recent rallies.  Bank One (ONE) and Summit Bancorp (SUB)
have both slumped in the past week and without any adjustments,
there is a potential for significant losses.  At this point, it
may be prudent to roll both positions out to June, protecting the
downside against further consolidation in each issue.  The credit
for the neutral transition in the Summit play; JUL20C/JUN25C is
$0.62, leaving a cost basis of $3.50.  The LEAPS/CC's position in
Bank One might benefit from a downward adjustment to the $25 calls.
In this case, our plan is to simply avoid losses in the short-term
and assume a bullish, in-the-money posture that allows for future
profits.  The cost basis in the new position; JAN20C/JUN25C will
be $5.00.

Questions & comments on spreads/combos to Click here to email Ray Cummins
******************************************************************
                     - SPECULATION PLAYS -
******************************************************************
CS - Cabletron  $25.44  *** On The Rebound? ***

Cabletron develops, manufactures, markets, installs and supports
local and wide area network connectivity hardware and software
products, including switches and hubs, remote access devices and
management software.  Cabletron delivers products to address the
full range of networking technologies, including Ethernet, Fast
Ethernet, Gigabit Ethernet, Token Ring, fiber distributed data
interface, asynchronous transfer mode, integrated services
digital network and frame relay.  Their core products include
the SmartSwitch hardware product family and Spectrum network
management software.  Cabletron also produces and supports other
network products, adapters, interconnection equipment, wiring
cables and file server products, and provides a wide range of
networking services.  The Company distributes its products to
manufacturing companies, governments, financial institutions,
universities and law firms around the world.

Cabletron owns and plans to spin off with public offerings a
number of independent units.  Unfortunately, in late March the
company was punished severely after they indicated the breakup
would take longer than Wall Street expected.  The CEO reported
that this situation could temporarily dampen financial results
and hamper the company's ability to focus on its customers and
competition.  Analysts had been under the impression that CS
would spin off the four independent units by the end of last
year but current plans suggest this will not occur until late
2000.

The independent companies include GlobalNetwork, a business unit
formed to help companies and service providers design and build
networks which are used to send Internet and corporate data from
point to point; Aprisma Management Technologies, which markets
network management software; Riverstone Networks, which sells
high-speed equipment to service providers; and Enterasys Networks,
which makes networking equipment for businesses.

Cabletron is optimistic about the eventual success of each of
these independent companies and analysts have valued the entire
group at $50-$60.  Cabletron recently announced plans to buy back
$400 million worth of its stock, a sign they are confident about
the bullish outlook.  Our strategy is simply a low-risk, LEAPS
with Covered-Calls position that offers excellent upside potential.


PLAY (conservative - bullish/diagonal spread):

BUY  CALL  JAN01-15  ZCJ-AC  OI=1479  A=$12.62
SELL CALL  JUN00-25  CS-FE   OI=145   B=$3.38
INITIAL NET DEBIT TARGET=$9.00  TARGET ROI=100%

Chart =
/charts/charts.asp?symbol=CS

*****

DF - Dean Foods  $27.50  *** Cheap Speculation! ***

Dean Foods is engaged in the processing, distribution and sales
of dairy, pickle and specialty products.  The company's primary
products are Dairy (fluid milk and cultured products, ice cream
and extended shelf life products), Pickles (pickles, relishes
and specialty items) and Specialty products (refrigerated salad
dressings, dips, sauces and puddings).  A significant portion of
the company's products is sold under private labels.  Dean Foods
also operates a trucking business hauling less-than-truckload
freight, concentrating primarily on refrigerated cartage, the
results of which are reported in the Specialty segment.

The Food and Beverage group has been active this past week on
speculation of a merger in the sector.  Unilever Plc has made an
$18 billion bid ($66 per share) for Bestfoods (BFO) but analysts
said it would have to sweeten its offer by $3 per share to get
Bestfoods to the table.  Regardless of the outcome, the bid is
expected to trigger a long-awaited round of consolidation in the
major food sector where stocks have languished due to slow growth
prospects.  Dean Foods appears to be in the group of potential
targets as the stock has begun to rally from a recent basing
pattern.  With the renewed interest in the industry, this is a
reasonably conservative "speculation play" with plenty of time
to achieve a favorable profit.


PLAY (conservative - bullish/calendar spread):

BUY  CALL  AUG-30  DF-HF  OI=47   A=$2.12
SELL CALL  MAY-30  DF-EF  OI=121  B=$0.31
INITIAL NET DEBIT TARGET=$1.62 TARGET ROI=50%


The basic premise in a calendar spread is simple; time erodes
the value of the near-term option at a faster rate than it will
the far-term option.

A less neutral and more bullish type of calendar spread is when
the underlying issue is some distance below the strike price of
the options.  This position is speculative with low initial cost
and large potential profits.  Two favorable outcomes can occur:
the stock rallies in the short-term and the position is closed
for a profit as time value erosion in the short option produces
a net gain or; the underlying stock consolidates, allowing the
sold option to expire and then eventually rallies above the long
option strike price.
 
It is generally best to establish this type of spread at least
2 - 3 months before the long option expires, capitalizing on the
ability to sell another option against the longer-term position.
That is the basic idea in this spread play; selling time value
in the options when they are overpriced (high implied volatility)
and buying it back (if necessary) when they return to intrinsic
value.  Ideally, we would prefer to have the stock finish just
below the sold strike when the near-term option expires. If the
short options are in-the-money at expiration, you will have to
buy them back to preserve the long-term position.

Chart =
/charts/charts.asp?symbol=DF

*****

ABGX - Abgenix  $102.88  ** On The Move! ***

Abgenix is a biopharmaceutical company that develops and intends
to commercialize antibody therapeutic products for the treatment
of a variety of disease conditions, including transplant-related
diseases, inflammatory and autoimmune disorders, cardiovascular
disease, infectious diseases and cancer. Abgenix has recently
developed XenoMouse technology, a proprietary technology which
produces antibodies with fully human protein sequences, generates
a diverse antibody response to essentially any disease target
appropriate for antibody therapy and high affinity antibodies
that do not require further engineering.  Abgenix also has four
antibody product candidates that are under development.

The majority of Major Drug companies have performed well in the
past few weeks and the Biotechnology Sector is also back on track
after a recent consolidation.  Today the group mounted a comeback
and ABGX moved to the top of a short-term trading range with a $6
rally to $102.88.  We like the issue for a bullish position but
there are not too many favorable ways to approach the inflated
option premiums.  In this case, we decided to sell premium for
credit and use the earned income to offset any losses on the
downside, in the event we accept assignment of the issue.  If the
share value moves through the small resistance area near $130, we
will simply buy the stock to cover our sold options.

 
PLAY (aggressive - neutral/credit strangle):

SELL CALL  MAY-145  AXY-EI  OI=400  B=$1.18
SELL PUT   MAY-80   AZG-QP  OI=4    B=$1.12
INITIAL NET CREDIT TARGET=$2.25-2.38 ROI(max)=10%
UPSIDE B/E=$147.38 DOWNSIDE B/E=$77.62

Chart =
/charts/charts.asp?symbol=ABGX



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************
See Disclaimer in section one
************

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